Friday, March 12, 2010

Romania Sells Biggest Bond With Yield Above Croatia’s

By Piotr Skolimowski and Sonja Cheung

March 11 (Bloomberg) -- Romania sold 1 billion euros ($1.37 billion) of five-year debt, setting yields above similarly rated Croatian notes to lure investors to its biggest offering of bonds to international investors.

The bond maturing in March 2015 and carrying a 5 percent coupon was priced to yield 268 basis points above the benchmark mid-swap rate, according to Bloomberg data. That’s higher than the spread of 227 basis points today on bonds due in 2015 sold by Croatia, which has the same Baa3 rating, the lowest investment grade, from Moody’s Investors Service, and ranks BBB- at Fitch Ratings, one level above Romania’s BB+.

Romania revived the bond sale it canceled in November after the government’s collapse, taking advantage of improved investor confidence since Prime Minister Emil Boc put together a Cabinet on Dec. 23 and lawmakers on Jan. 14 approved a plan to narrow the 2010 budget deficit. The International Monetary Fund, which suspended a 20 billion-euro bailout package after the previous government failed in October, resumed payments last month, releasing $3.3 billion.

“The issue looks like a very good value,” said Thomas Kirchmair, who helps oversse fixed-income assets at Frankfurt- based Deka Investment GmbH, which manages the equivalent of $18 billion worldwide. “Romania’s credit quality is improving and with the stable government in place and the IMF package they can resist the stress in the market.”

Bond Risk

Turkey said today it plans to sell 11-year dollar bonds in its first test of investor demand since announcing the end of talks yesterday with the IMF, saying the country can handle its finances without the institution’s help. Israel is selling its first bonds in euros since 2005 as the country seeks to diversify its sources of funding, according to a banker involved in the transaction.

Standard & Poor’s this week raised its outlook on Romania’s BB+ rating to “stable” from “negative,” citing a “sustained budgetary reform program,” and Fitch did the same on Feb. 3. Five-year credit default swaps fell to 205 basis points yesterday, making the cost of protecting against a default by Romania the cheapest since Sept. 30, according to CMA DataVision prices available on Bloomberg.

The country planned to sell about 1 billion euros of bonds and may offer more debt before yearend, Finance Minister Sebastian Vladescu said on March 2. Today’s sale is the biggest ever of euro-denominated bonds for the country, according to Bloomberg data. The sale was more than 4.5 times oversubscribed, according to a statement from Deutsche Bank AG, EFG Eurobank and HSBC Holdings Plc, who managed the offer.

Dollar Sale

“Romania can still do the dollar sale later this year,” said Jeremy Brewin, who helps manage $1 billion of emerging- market debt at Aviva Investors Ltd. in London. “It would be a smart move. They could easily sell $1 billion.”

Bondholders returning to Romania have driven down the extra yield on government notes due 2018 to 276 basis points above similar-maturity German bunds, from more than 340 basis points in December and 961 basis points at the beginning of 2009, according to data compiled by Bloomberg.

The BET Index of Romanian stocks gained 0.1 percent to close at 5,548.99, bringing its gain this year to 18 percent. The leu lost 0.l percent to 4.0969 per euro as of 4:50 p.m. in Bucharest, for an appreciation of 3.3 percent in 2010.

The government’s budget plan attempts to cut the deficit to 5.9 percent of gross domestic product from 7.2 percent last year.

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